Consider a bank with the following balance sheet: Liabilities Assets $525,000,000 Deposits $50,000,000 Reserves $475,000,000 Loans This
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Question:
- Consider a bank with the following balance sheet:
Liabilities | Assets |
$525,000,000 Deposits | $50,000,000 Reserves |
$475,000,000 Loans |
This bank can liquidate loans at 67 cents on the dollar. Meaning they can sell a $1 loan for $0.67.
- a. (2 points) Compute the reserve ratio for this bank.
- b. (4 points) Suppose depositors arrived and withdrew $40,000,000. Show the bank’s new balance sheet. Would the bank need to liquidate any loans?
- c. (4 points) Suppose depositors arrived and withdrew $75,000,000. Show the bank’s new balance sheet. Would the bank need to liquidate any loans?
d. (2 points) How can bank runs cause a recession?
Related Book For
Money Banking and Financial Markets
ISBN: 978-0078021749
4th edition
Authors: Stephen Cecchetti, Kermit Schoenholtz
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